1. Quality Uncertainty and Market Efficiency
Electronic Commerce
Quality Uncertainty and Market Efficiency

2. The lemon problem
Akerlof (1970) (one of winners of 2001 Nobel economic prize)
Unrevealed information about used cars (the lemon cars)
Those low-quality used cars were sold in the prices higher than their actual values.
Lacking of the detective capability to discover the truth
Adverse screening in banking
Those who go for credit are short of money, why would the banks loan to them? The bank merely loaned capital to the affordable people.
Those who are in the serious financial straits unfortunately went to the covert private bank with more higher interest burden.
Other cases
Senior (veteran) vs. junior (a green hand)

3. The market mechanism Markets fail! No! The market of lemon cars
Try out, a returnable term
Promise and guarantee commitment
The banking system
Raise the interest rate for incredible loaners
Credit reference and investigation
Dynamic interest rates of loan
The discriminatory pricing

4. Quality signaling in the market
Price
Schumalensee effect
The firm’s reputation, The size of market share
Experience, Middlemen (commitment of third parties, retailers, brokers, infomediaries)
Costs for developing quality signal
Imitation, rip-off, fake
Incentive for revealing quality information
Raise prices higher for more returns

5. Some social/economic phenomena about signaling failure
濫竽充數, 混水摸魚
楚材晉用, 懷才不遇
魚目混珠
Corresponding mechanisms?

6. Online signaling mechanisms
Try-out strategy
Freeware
Shareware
Help users recognize the preference and valuate the willingness to pay
Possibility of discrimination
Segmentation

7. The try-out economics
If the cost bottom line is higher, then to sell at $1000 to high-type with try-outs.
If the cost bottom line is lower, then to sell at $750 to all without try-outs.

8. The efficiency of market
Transaction cost
Searching cost
Bargaining cost
Contracting/drafting cost
Enforcement/monitoring cost
Measurement cost
Bonding/safeguarding/punishing cost
Facilitating signals?

9. Functions of invisible hand— the price mechanism
Competition from sellers—reveal the bottom line of cost
Competition from buyers—reveal the upper bound of willingness to pay
Auctioning mechanism
Doubt auctions approximate toward to perfect competition

10. The role of intermediary
As facilitators (matching & aggregating)
As experts (specific time and space knowledge)
As credible information sources (screening the cheating suppliers for preventing themselves from reputational spillover)
As producers (packaging and customization services)

11. Quality assurance by intermediary
Subcontracting system
Competitive bidding
Long-term just-in-time system
Cf. Japan auto firms vs. U.S. GM/Ford
Incomplete contracting
The futurity depends on the current performance
Microproducts and micropayments
A form of incomplete contracting directly used between producers and end users, i.e., charging by each usage and punishment by termination